Insider Trading Compliance Checklist for Indian Corporates

SEBI’s prohibition of insider trading regulations require listed entities to maintain a structured digital database of persons with access to unpublished price sensitive information, operate trading window closures, enforce a code of conduct, and maintain a policy for legitimate purposes. Enforcement focuses heavily on the database.

Unpublished price sensitive information

UPSI is information relating to a company or its securities, not generally available, which on becoming generally available is likely to materially affect the price. The regulations specify categories deemed to constitute UPSI, and these have been expanded.

The practical difficulty is identifying the moment information becomes UPSI — usually earlier than teams assume. Information typically becomes UPSI when it takes definite shape, not when it is approved or announced.

The structured digital database

Listed entities must maintain a structured digital database recording the names and identifiers of persons with whom UPSI is shared, the nature of the information, and the time of sharing. It must have audit trails, be non-tamperable, and be preserved for the prescribed period.

This is where enforcement concentrates. Deficient databases — maintained retrospectively, incomplete on external parties such as advisors and bankers, or lacking audit trails — are among the most commonly cited failures. The database must be populated contemporaneously; a database reconstructed after the fact defeats its purpose and is usually detectable.

Trading window and code of conduct

The trading window is closed for designated persons during periods when UPSI is likely to exist, notably around financial results, and reopens after a prescribed period following publication.

Pre-clearance is required for trades above specified thresholds by designated persons, with a contra-trade restriction for a prescribed period. Designated persons and their immediate relatives are within scope, and the definition of immediate relative should be applied as written rather than by assumption.

Trading plans and legitimate purposes

Trading plans allow designated persons to trade during otherwise restricted periods, subject to conditions on formulation, disclosure and minimum periods. These conditions were relaxed to make plans more workable.

A policy for determining legitimate purposes governs sharing of UPSI with counterparties in the ordinary course. Recipients become insiders, must be entered into the database, and must be put on notice of their obligations.

Practical checklist

Populate the database at the point of sharing, including external advisors, and confirm the audit trail cannot be altered. Train deal teams to recognise when information takes definite shape. Confirm the designated persons list is current, particularly after joiners and departures. And give counterparties written notice of their insider status.

Related reading

• LODR obligations — SEBI LODR Compliance Calendar for Listed Entities
• related party disclosure — Related Party Transactions: Companies Act and SEBI LODR Rules

Sources

• SEBI (Prohibition of Insider Trading) Regulations, 2015 — sebi.gov.in